Canova Op-Ed: Fix NAFTA Before Stretching It Hemisphere-Wide

["Tim Canova" <tim.canova@xxxxxxxxxxxxxxx>]

Title: Canova Op-Ed: Fix NAFTA Before Stretching It Hemisphere-Wide

http://www.abqjournal.com/opinion/guest_columns/111677opinion11-18-03.htm

Tuesday, November 18, 2003

Fix NAFTA Before Stretching It Hemisphere-Wide

By Timothy A. Canova
UNM Law Professor

    This week's meetings and protests in Miami over the proposed Free Trade Area of the Americas (FTAA) is the latest ground zero in the ongoing debates about globalization.

    Free traders are once again squared off against labor and environmental activists. Unseen, but hovering in the background, has been the specter of NAFTA, the nearly decade-old North American Free Trade Agreement between the United States, Mexico and Canada.

    The Bush administration has promised that the FTAA will be a NAFTA for the entire western hemisphere- and that's just what has a lot of people worried.

    NAFTA promised a free flow of goods, services and investment between the three North American countries. And while trade has increased, it has not stemmed the loss of U.S. jobs or lifted stagnant Mexican living standards.

    While NAFTA has provided profits to multinational companies in selected industries, it has also disrupted a lot of lives. For instance, hundreds of thousands of Mexican farmers and their families have been displaced as a result of subsidized U.S. food imports. That has contributed to a large migration within Mexico, as well as illegal immigration into the U.S., all in search of work.

    Mexico is unable to compete with enormous U.S. agricultural subsidies, now more than $190 billion over 10 years. In fact, Mexico cannot even adequately fund its public sector or provide essential public services, such as primary health care and education, or enforcement of its environmental and labor laws.

    In the run-up to NAFTA, Mexico became dependent on foreign loans to finance its growing trade deficit and government borrowing requirements. But when foreign investors suddenly started selling off their Mexican bonds at the end of 1994, the peso crashed and Mexico was left broke and dependent on loans from the International Monetary Fund (IMF).

    With those IMF loans came burdensome conditions, including deflationary monetary and fiscal policies that have decimated Mexican living standards. IMF conditions also push countries to privatize their public services, and there is growing concern that the FTAA would lock in this bias against subsidized services by providing U.S. investors equal legal footing to buy privatized assets.

    NAFTA did provide Mexico with significant inflows of foreign direct investment. U.S., European, and Japanese companies built thousands of maquiladoras- production and assembly plants- along Mexico's northern border. This is what NAFTA's critics have called the "race to the bottom." While American workers saw hundreds of thousands of their jobs flee south, U.S. businesses were able to take advantage of Mexico's lower wages and lax labor protections and environmental enforcement.

    But as Mexicans are learning, in today's unfettered globalized trade environment, the bottom can just keep on falling. In the past two years, Mexico has lost nearly a quarter million of its maquila jobs to China.

    Not surprisingly, maquila wages have remained shockingly low, barely enough for Mexican workers to meet their basic needs. Most workers live in shacks under corrugated tin roofs. And since the foreign-owned maquiladoras enjoy tax-free status, most of the company towns still lack paved roads and sewage systems. Mexican governments- federal, state and local- all lack the resources to invest in basic infrastructure.

    These are major differences between NAFTA and the European Union, which will soon span some 25 countries, more than 400 million people, and has already surpassed the U.S. in overall economic activity.

    The EU has a Regional Assistance Program by which its wealthier countries are subsidizing its poorer regions with about $227 billion in aid over the present five-year period. That's $45 billion a year, or about three times the total U.S. foreign aid budget and more than twice the annual cost of U.S. farm subsidies.

    In contrast, NAFTA provides no regional assistance for Mexico to build its physical infrastructure, educate and train its population, or enforce its environmental laws. The proposed FTAA has a Hemispheric Cooperation Program that is funded with only $140 million from the U.S. and $24 million from Canada in this fiscal year. While this may be enough to co-opt some local elites, it will not raise living standards or public sector capabilities in any Latin American country.

    Free trade and closer economic and political ties for the western hemisphere are important strategic objectives. But such worthy goals require that we acknowledge and build upon NAFTA's successes and failures alike by helping our southern neighbors meet their own democratic aspirations.

Tim Canova is a professor of law at the University of New Mexico. He is presently teaching international financial law as a visiting professor at the University of Arizona.  E-mail: tim.canova@xxxxxxxxxxxxxxx